WHAT THE HECK IS A REC?THE LOWDOWN ON RENEWABLE ENERGY CERTIFICATES

A PRESENTATION TO THE SUSTAINABLE MADISON COMMITTEE

FEBRUARY 26, 2018

Michael VickermanProgram/Policy Director

AVAILABLE PATHWAYS FOR 100% RENEWABLE ELECTRICITY

¡Self-supply (behind the meter)

¡ Purchase output from an off-site renewable project through a utility tariff (MGE’s Renewable Energy Rider)

¡ Purchase green power provided by the local utility (MGE’s Middleton shared solar project)

¡ Purchase renewable energy certificates (from RE project owners)

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DEFINITION OF REC’S

¡ Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits, Renewable Electricity Certificates, or Tradable Renewable Certificates (TRCs), are tradable, non-tangible energy commodities in the United States that represent proof that 1 megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource (renewable electricity) and was fed into the shared system of power lines which transport energy.

RENEW WISCONSIN PRESENTATION From Wikipedia

PUT ANOTHER WAY …

Power on the grid comes from all sorts of sources: coal, nuclear, natural gas, renewables. Once it’s on the grid, it’s all blended together. So, as an end user, you can’t really tell where that exact megawatt hour you’re using comes from. RECs are a way for businesses to certify that they have a valid claim to the carbon reductions from a specific project. These certificates provide verification that a business’ support for renewable energy had an impact on the grid.

From EnergySMART

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https://www.energysmart.enernoc.com/practical-guide-renewable-energy-terms-what-are-ppas-virtual-ppas-and-recs

REC’S COME IN TWO FLAVORS

Bundled with electricity (a/k/a “green power”)

Example: MGE’s Green Power Tomorrow program or shared solar project

ECN TWO FLAVORS

Unbundled from electricity (a/k/a “green tags”)

Example: Organic Valley’s contract with OneEnergy

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UNBUNDLED REC’S ARE …

¡Measurable (I MWH is the unit)

¡Scalable (to the customer’s desire)

¡ Trackable (via M-RETS)

¡ Tradable

¡Verifiable (by a third party)

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This is a mature and transparent commodity market

ADVANTAGES OF REC PURCHASES

ØInexpensive way of accessing RE

ØSpeedier acquisition process

ØPurchaser can target resource type, location

ØNot regulated by Public Service Commission

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Source: U.S. Environmental Protection Agency

Unbundled REC’s account for two-thirds of the renewable electricity marketplace.

WHO SELLS OR TRADES REC’S?

¡RE project owners

¡Utilities (in accordance w/ state RPS’s)

¡National aggregators (Arcadia Power)

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ENVIRONMENTAL ATTRIBUTES OF CLEAN ENERGY FOLLOW THE REC’S

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1 MWH REC

$$PLAIN VANILLA ENERGY

CAN REC PURCHASES LEVERAGE NEW GENERATION?

Yes. Depending on the contract structure, REC purchases can provide a revenue stream that makes a solar or wind project financeable.

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Downsville, WI

WHAT WOULD THE CITY OF MADISON LOOK FOR IN A REC PURCHASE?

ADDITIONALITY

DEFINITION OF ADDITIONALITY --But for the purchase of REC’s associated with a particular project’s output, that project would not have been built.

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WISCONSIN’S NO. 1 PURCHASER OF RENEWABLE ENERGY CERTIFICATES

Organic Valley distribution center, Cashton, WI

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"Our future demands bold new thinking about our sources of energy, and there is nothing more natural to a farmer than harnessing the power of the sun and the wind, so our cooperative is committed to achieving 100 percent

renewable power, and doing it in partnership with the rural communities where we live and work.“

George Siemon – Organic Valley CEO

(Annually)

(Annually)

(25 years)

PAST INVESTMENT IN RENEWABLES

WHY THIS APPROACH?

WHY THIS APPROACH?

WHY THIS APPROACH?

• Rapiddeploymentofmoresolarthanwecould

implementalone

• Goingfrom300kW- 12,000kW+requirednewapproach

• Notjustatarget/goal,butapathtogetthere

WHY THIS APPROACH?

OPPORTUNITY FOR CITY OF MADISON TO PARTICIPATE

¡ Wehaveretainedflexibilityinourfinalportfoliotoallowotherpartnerstoselectprojectstheyareinterestedin (e.g.,CityofMadison)

¡ EliminatingRisk,CapitalExpenditure,&Operations+ Maintenance¡ Earnedsupportofourboard/executivesfora25-yearcommitment¡ Includessignage&directprojectconnection/namingrights¡ Potentialtoprepayatadiscountedrate.

WHY THIS APPROACH--SUMMARY

¡ Thisstructureallowsustodeploymuchmorerapidlyandlessexpensivelythanbehindthemeterorpreviousprojects.

¡ LimitationstowhatispossibleduetoPSCregulationsinWI(directPPAnotseenasviable)

¡ Inabilitytocapturetaxbenefitsasacooperative(sameforcity)

¡ Abilitytopartnerwithruralcommunities

¡ Locatingprojectswheretheymakesensefortheregionalanddistributiongrid(s).

¡ Ourindividualutilitycouldn’tfeasiblytakeall12-13MW

REC PURCHASES CAN BE OFFSET THROUGH EFFICIENCY

CityofMadison’selectricconsumption

¡ 53millionkWh/year– 53,000MWH/year

Annualcostofelectricity

¡ X12cents/kWh=$6,360,000

Annualsavingsfrom1%reductioninelectricityuse

¡ 1%of53millionkWh=530,000kWh/yr

¡ At12cents/kWh,a1%reductioninenergyusesaves$63,600/yr

RECPurchases

¡ 1RECfromOneEnergy =$4/MWHor$0.004/kWh(similarpricetowhatOrganicValleywillpayeachyearovera25-yearperiod).

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HOW MANY RECEC’S CAN MADISON PURCHASE WITH $63,000 ANNUALLY?

$63,600/$4=15,900MWH(15,900,000kWh)

15,900/53,000=0.30

Therefore,a1%reductioninenergyuseproducessavingsthatoffsetaRECpurchasecovering30%ofCityofMadison’selectricityuse!

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